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Premium Bonds hit all-time low return

From Tuesday the rate of return will be the lowest in the prize draw's 42-year history.

Starved of the National Lottery's glitzy hype and multi-million pound jackpot, you might think Premium Bonds had lost out to their more flashy rival.

In fact the state-sponsored prize draw has skilfully prospered on the back of the "get rich quick" mentality fostered by Lottery fever.

Since the £1m top prize was introduced in 1994, take up has soared, with more bonds sold than in the 37 preceding years put together.

But all that could be about to change. From Tuesday the odds will lengthen to the longest in the Premium Bonds' 43-year history.

National Savings, the government-run savings bank, is cutting the return on the total £12bn prize fund to 3.25% - the lowest ever.

At the same time the odds of any £1 bond winning a prize will fall from 19,000-to-1 to 24,000-to-1.

The decision comes as the National Lottery is moving the other way - launching its new Thunderball game, which offers better odds for less prize money.

Determined mood

Despite the bad omens, National Savings is putting on a brave face, saying it does not expect to lose out. But the move may eventually force a strategy re-think among top management.

Ever since they were launched in 1957, Premium Bonds have been saddled with the "dull but worthy" tag.

In those days the top prize was £1,000 - equivalent to about £13,000 today - still well short of the football pools jackpot which had reached £80,000 by 1950. There were also several lesser prizes.

But mega wins were never the point of the Premium Bonds, especially not in those austere post war times. The scheme's selling point was to allow a punter to gamble but never lose his stake.

All down to luck

In fact the bet could be withdrawn at any time and the only loss was the potential interest that could have been earned in a building society.

This "no lose" factor coupled with the fact that all winnings were tax-free and human nature's indefatigable belief in luck helped the bonds become an instant success.

But some credit must also go to the marketing men's shrewd decision to name the computer which randomly picked the winning bonds every month.

Ernie - an acronym for Electronic Random Number Indicator Equipment - was never more than a mass of valves and switches. Yet crucially the name gave character and spirit to what was otherwise another boring government savings scheme.

(The National Lottery, launched in 1994, has followed suit by giving names such as Guinevere and Lancelot to its automated prize ball pickers)

The fact that individuals could buy bonds as a gift, in the name of a relative, was also a popular move. Countless parents and grandparents have bought a stake for newly born family members.

In less than 50 years Premium Bonds have become a national institution. More than 23 million people, or half the population, own at least one.

Updating old image

There have been several changes in an effort to keep up with the times.

Ernie has transmogrified from a clunking piece of cutting edge British machinery into an anonymous, everyday computer (now in the hands of German electronics group Siemens).

The smallest prize is now £50 and the minimum stake for a new investor stands at £100, while the maximum is £20,000.

And the decision to quadruple the jackpot to £1m helped raise the profile of Premium Bonds.

But despite the big money on offer, millions of pounds in prizes remain unclaimed by investors who do not know they've won.

Traditionally, winners are notified by post and all unclaimed prizes, since the first draw in 1957, are listed in the London Gazette, which is published quarterly and held by major post offices.

In a bid to update the process, punters can now check out if they have made millionaire status using the Internet.

Internet Links

Check your Premium Bonds here
AAA investment guide - Premium Bonds

The BBC is not responsible for the content of external internet sites.

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